103 F.

3d 351
65 USLW 2451, Fed. Sec. L. Rep. P 99,379,
36 Fed.R.Serv.3d 1500

Alan H. GASNER; Signet Trust Company, as Trustee under,

Indenture of Trust dated April 15, 1993, with the
Industrial Development Authority of
Dinwiddie County, Virginia,
Plaintiffs-Appellants,
v.
The BOARD OF SUPERVISORS OF THE COUNTY OF
DINWIDDIE,
VIRGINIA, in their official capacity; Charles W. Burgess,
Jr.; Dewey P. Cashwell; The Industrial Development
Authority of Dinwiddie County, Virginia, a political
subdivision of the Commonwealth of Virginia; Carter Kaplan
and Company, a Virginia Limited Partnership; Carkap,
Incorporated, a Virginia Corporation; William P. Carter;
Robert R. Kaplan; EMS Engineering, P.C., a New York
Professional Corporation; Virginia Bio-Fuel Corporation, a
Virginia Corporation; Funnell Industries, Incorporated, a
New York Corporation; Barry H. Funnell; Harvey T. Baxter,
III; Hirschler, Fleischer, Weinberg, Cox & Allen, P.C., a
Virginia Professional Corporation; David F. Belkowitz;
Sands, Anderson, Marks & Miller, P.C., a Virginia
Professional Corporation; Daniel M. Siegel; The County of
Dinwiddie, a Political Subdivision of the Commonwealth of
Virginia, Defendants-Appellees,
and
Frederick C. Maloney; Sharon M. Maloney, Parties in Interest.
No. 96-1010.

United States Court of Appeals,

Fourth Circuit.
Argued Oct. 31, 1996.

Decided Dec. 31, 1996.

1

ARGUED: Stephen Atherton Northup, Mays & Valentine, Richmond, VA, for
Appellants. J. Jonathan Schraub, Robins, Kaplan, Miller & Ciresi, Washington,
DC; Heman A. Marshall, III, Woods, Rogers & Hazlegrove, P.L.C., Roanoke,
VA; Gary Alvin Bryant, Willcox & Savage, P.C., Norfolk, VA, for Appellees.
ON BRIEF: Robert L. Brooke, Alan D. Wingfield, Mays & Valentine,
Richmond, VA; Murray H. Wright, Jonathan S. Geldzahler, Wright, Robinson,
McCammon, Osthimer & Tatum, Richmond, VA, for Appellants. Danny M.
Howell, Robins, Kaplan, Miller & Ciresi, Washington, DC; Frank K. Friedman,
Woods, Rogers & Hazlegrove, P.L.C., Roanoke, VA; Stephen T. Gannon, L.B.
Cann, III, LeClair Ryan, Joynes, Epps & Framme, P.C., Richmond, VA; Daniel
A. Gecker, Steven S. Bliss, Maloney, Barr & Huennekens, P.C., Richmond,
VA, for Appellees.

Before MURNAGHAN and NIEMEYER, Circuit Judges, and HARVEY,

Senior United States District Judge for the District of Maryland, sitting by
designation.

Affirmed by published opinion. Senior Judge HARVEY wrote the majority

opinion, in which Judge NIEMEYER joined. Judge MURNAGHAN wrote a
dissenting opinion.

OPINION
ALEXANDER HARVEY, II, Senior District Judge:
4

This litigation arose as a result of the financial failure of an anaerobic

composting facility (the "Facility") constructed by a private firm for the
purpose of processing the solid waste of a Virginia county. Bonds issued to
finance the purchase and installation of equipment for the Facility were
defaulted when the venture failed. Bondholders then filed suit in the United
States District Court for the Eastern District of Virginia, alleging violations of
federal securities laws and Virginia state law. Named as defendants in the action
were the County, the industrial development authority which had issued the
bonds, the bond underwriter, attorneys for some of the parties and various other
individuals and corporate entities.

Motions to dismiss and for summary judgment were filed by the defendants.
Following a hearing, the district court granted defendants' motions for
summary judgment. This appeal followed. Because we find no merit to any of

the errors assigned by the appellants, we affirm the judgments entered below.
6

* In an effort to satisfy its governmental function of disposing of trash

generated by its residents while complying with recycling requirements
imposed by the State, Dinwiddie County, Virginia (the "County") developed a
plan for the construction and operation of a facility which would process the
County's solid waste without the use of costly landfills. Virginia Bio-Fuel
Corporation ("VBFC"), a private corporation, was engaged to construct and
operate the Facility. The County's existing landfill was to be closed, a concrete
building was to be constructed on the site and VBFC was to install equipment
designed to combine biodegradable waste with sewage sludge to create mulch.
It was decided that the project would be financed by means of tax free
municipal bonds to be issued by the Industrial Development Authority of
Dinwiddie County (the "Authority"), a political subdivision of the
Commonwealth of Virginia. The Authority had been established to further
industrial development in the County, by serving, inter alia, as a vehicle
whereby private businesses might secure tax exempt financing.

In December of 1992, the Authority issued $1,120,000 in bonds to finance the

closure of the County's existing landfill (the "Closure Bonds"). In March of
1993, the Authority issued $1,230,000 in bonds to finance the construction of
the building which would house the new composting Facility (the "Building
Bonds"). In April of 1993, the Authority issued $3,000,000 in bonds to finance
the acquisition of recycling and co-composting equipment to be installed in the
building then under construction (the "Equipment Bonds"). The Equipment
Bonds were issued pursuant to the terms of an Offering Statement dated April
15, 1993. It is the Equipment Bonds which are at issue in this case.1

Proceeds received by the Authority as a result of the sale of the Equipment

Bonds were to be loaned by it to VBFC which was to use the funds to acquire
and install the necessary recycling and composting equipment. VBFC had
entered into an Operations Contract with the County whereby the County was
to pay VBFC a fixed rate for waste disposed of in the Facility. Although the
Equipment Bonds were issued by it, the Authority was obligated to pay the
principal of and the interest on the Bonds only from funds received from VBFC
under the Note which VBFC had executed in favor of the Authority. Thus, the
obligation for payment of such principal and interest was, under the Offering
Statement, essentially that of VBFC.

From the outset of its operation of the Facility, VBFC encountered serious
problems. The materials used proved to be of poor quality. VBFC lacked
sufficient financial resources to permit it to operate, mainly because it had been

unable to secure contracts with other counties for the processing of their waste.
Sufficient revenue was therefore not forthcoming for the operation of the
Facility, and funds were not available for payment of principal and interest to
bondholders. In October of 1994, the project was abandoned, resulting in a
default of the Equipment Bonds.
10

Alan H. Gasner ("Gasner") is the holder of $955,000 of the Equipment Bonds.

Signet Trust Company ("Signet") is Trustee under the Indenture Trust covering
the Bonds. Gasner and Signet filed a complaint and later an amended complaint
in the United States District Court for the Eastern District of Virginia seeking
compensatory damages arising as a result of the bond default.2 Named as
defendants, inter alia, were the County, the Authority, VBFC, and Carter
Kaplan & Company, L.P. ("Carter Kaplan"), the brokerage firm which had
underwritten the issuance of the bonds.3

11

In Count 1 of their amended complaint, plaintiffs claimed that defendants had

violated 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) and
Rule 10b-5, 17 C.F.R. 240.10b-5 (hereinafter the "Rule 10b-5 claim"). It was
alleged in Count 1 that all defendants had made or caused to be made untrue or
misleading statements or omissions of material fact in connection with the
issuance of the Equipment Bonds.

12

Count 2 of the amended complaint charged a violation of 12(2) of the

Securities Act of 1933, 15 U.S.C. 77l(2). It was alleged in Count 2 that the
County, the Board, the Authority, VBFC and Carter Kaplan had sold the
Equipment Bonds by means of untrue statements of material fact and by means
of wrongful omissions.4

13

Count 3 charged a violation of 12(1) of the Securities Act of 1933, 15 U.S.C.

77l(1). It was alleged in Count 3 that the County, the Board, the Authority,
VBFC and Carter Kaplan were sellers of securities with respect to the issuance
of the Equipment Bonds and that the Bonds had not been properly registered as
required by 5 of the 1933 Act.5

14

Counts 4 through 16 of the amended complaint asserted pendent claims under

Virginia law pursuant to the district court's supplemental jurisdiction. Claims of
violations of the Virginia Securities Act, fraud, breach of contract, attorney
malpractice, engineer malpractice, conversion, tortious interference with
contract, breach of fiduciary duty and wrongful taking of trust property were
included in those Counts.

15

16

At an early stage of the case, defendants filed motions to dismiss or for

summary judgment. Since affidavits and exhibits had been submitted in support
of these motions, they were treated by the district court as motions for
summary judgment under Rule 56, F.R.Civ.P. Following a hearing, the district
court issued a Memorandum Opinion and Final Order on December 7, 1995,
granting the defendants' motions for summary judgment. The Court ruled (1)
that Counts 1 and 2 of the amended complaint should be dismissed with respect
to all defendants because the defendants had made no material
misrepresentations or omissions in the Offering Statement; (2) that,
alternatively, Count 1 should be dismissed as to all defendants because
plaintiffs had failed to demonstrate loss causation; (3) that, alternatively, Count
1 should be dismissed as to the County and certain other defendants because
they had no affirmative duty of disclosure; (4) that, alternatively, Count 2
should be dismissed as to the County, the Board and the County Administrator
because they were not statutory sellers under 12(2); (5) that Count 3 should
be dismissed because the issue presented was not ripe for decision and there
was accordingly no case and controversy before the court; and (6) that the
pendent state law claims should be dismissed without prejudice inasmuch as the
federal claims were being dismissed with prejudice.
This appeal followed.

II
17

Appellants first challenge the district court's determination that plaintiffs' Rule
10b-5 and 12(2) claims must fail because defendants made no material
misrepresentations or omissions in the Offering Statement for the Equipment
Bonds. Since the decision below was reached by way of the district court's
granting of defendants' motions for summary judgment, the standard for review
is de novo. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.1991), cert.
denied, 503 U.S. 936, 112 S.Ct. 1475, 117 L.Ed.2d 619 (1992). What must be
determined on this record is whether in opposing defendants' motions, plaintiffs
presented evidence of sufficient "caliber and quantity" that a reasonable jury
could return a verdict for the plaintiffs. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248, 254, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).

18

To establish liability under Rule 10b-5, a plaintiff must prove the following
elements: (1) that in connection with the purchase or sale of a security the
defendant made a false statement or omission of material fact; (2) with scienter;
(3) upon which the plaintiff justifiably relied; and (4) that proximately caused
plaintiff's damages. Hillson Partners Ltd. Partnership v. Adage, Inc., 42 F.3d
204, 208 (4th Cir. 1994); Schatz, 943 F.2d at 489. To establish liability under

12(2), a plaintiff must prove (1) that defendant offered or sold a security; (2) by
the use of any means of communication in interstate commerce; (3) through a
prospectus; (4) by making a false statement or omission of material fact; (5) the
untruth of which was known by defendant but not known by plaintiff; and (6)
that caused plaintiff's damages. Ballay v. Legg Mason Wood Walker, Inc., 925
F.2d 682, 687-88 (3d Cir.), cert. denied, 502 U.S. 820, 112 S.Ct. 79, 116
L.Ed.2d 52 (1991).
19

For a misrepresentation or omission to violate both Rule 10b-5 and 12(2), it

must be material. The question of materiality is an objective one, involving the
significance of an omitted or misrepresented fact to a reasonable investor. TSC
Industries, Inc. v. Northway, Inc., 426 U.S. 438, 445, 96 S.Ct. 2126, 2130-31,
48 L.Ed.2d 757 (1976).6 A misrepresented or omitted fact is material if there is
a substantial likelihood that a reasonable investor would have been caused by
disclosure of the truthful fact to change his decision to purchase the security. Id.
at 449, 96 S.Ct. at 2132; Walker v. Action Industries, Inc., 802 F.2d 703, 706 n.
6 (4th Cir.1986), cert. denied, 479 U.S. 1065, 107 S.Ct. 952, 93 L.Ed.2d 1000
(1987). Disclosure of the true facts or of the omitted fact must have been
viewed by the reasonable investor as having significantly altered the "total mix"
of information made available. TSC Industries, 426 U.S. at 449, 96 S.Ct. at
2132.

20

In contending that appellees' motions for summary judgment should have been
denied, appellants rely on several statements in the Offering Statement claimed
to be misrepresentations and one omission. First, they assert that appellees
misrepresented the anaerobic composting technology by labeling it as "proven."
Second, they contend that appellees misrepresented the commercial viability of
the Facility. Third, they assert that appellees omitted to state that the State of
Virginia would issue to the Facility only a one-year experimental operating
permit.

21

The Offering Statement dated April 15, 1993 is some 49 pages in length and
contains detailed information relating to the issuance of the bonds by the
Authority. Attached to the Offering Statement is a Feasibility Statement
submitted by EMS Engineering, Inc. Appellants claim that the following
statements contained in the concluding paragraph of the Feasibility Statement
are material misrepresentations:The co-composting and materials recovery
equipment are proven technology and are being used in other facilities. (p. 4)

******
22
[W]e have compared the design and engineering aspects of the Facility to existing
23

operational facilities in New York, California and Europe and have incorporated the
same proven aspects of engineering and design into the Facility. (p. 4)
24

Following abandonment of the project, the County hired Organic Waste

Systems ("OWS"), a Belgian waste management consulting firm, to evaluate
the Facility and make recommendations for its possible future use. On May 30,
1995, OWS issued a 51-page Report entitled "Evaluation of Materials Recovery
and Co-composting Facility at Dinwiddie County." Appellants did not submit
any affidavit of an expert in opposing appellees' motions for summary
judgment. Rather, in arguing that certain statements in the Offering Statement
are false, appellants relied on the following selected portions of the OWS
Report:

25 technology of dry anaerobic digestion was an emerging technology at the time

The
of selection. (p. 5).
******
26
27the development in the U.S. of anaerobic high solids digestion systems has
...
virtually stagnated and has been limited to some small pilot scale experiences. (p.
10).
******
28
29 of the existing technologies were [sic ] actually proven over a long period of
None
time and no long term reliable investment and operating costs were available. (p. 12).
30

According to appellees, substantial evidence before the district judge

established that the technology in question was not "experimental" and
"unproven." Appellees refer to the following statements in the OWS Report:

31
Anaerobic
dry digestion facilities, started up or contracted for at the same time [as
the VBC Facility], have shown to be very successful, indicating that a viable
technology was available. Anaerobic composting as a general technology has now
been widely accepted in Europe and is considered to be a viable alternative to
conventional aerobic composting. (p. 5).
******
32
33 though the technology was available and has been confirmed by further growth
Even
in the marketplace, VBC failed to provide an adequate anaerobic composting
system. (p. 5).

******
34
The technology of dry or high-solids digestion of solid waste in general was at the
35
moment of selection of the proposed technology already more than ten years under
development. (p. 9).
******
36
37 the summer of 1992, the time of the process selection for Dinwiddie County,
By
several full-scale plants using the dry digestion of organic waste were operating in
Europe. (p. 9).
******
38
39 technology has been established as a proven technology from a technical point
The
of view. (p. 11).
******
40
41the selection was made at a time when the technology had progressed from a
...
pilot-scale to a full-scale development, with a number of full-scale plants
demonstrating the viability of the technology on a full-scale. (p. 12).
******
42
43
Plants
started up or contracted for around the same time as the moment of the
selection by the county [of] VBC, have been successful and indicate that the
technology for dry anaerobic composting was available and mature. (p. 13).
44

Appellees further rely on the affidavit of Luc De Baere, the primary author of
the OWS Report, who stated that appellants had misinterpreted the Report.7
Referring to various portions of the Report, De Baere stated that anaerobic
composting technology was not experimental or unproven as of 1993.
According to De Baere, anaerobic dry digestive facilities in Europe which
began at the same time as the Dinwiddie County Facility have proven to be
successful, and anaerobic composting technology is widely accepted in Europe.

45

Appellants further argue that the failure of the Offering Statement to indicate
that the Virginia Department of Waste Management ("DWM") would be
issuing only a temporary permit for the Facility was a material omission. By
way of reply, appellees point out that it was not known when the Offering
Statement was issued on April 15, 1993, whether a final permit or a temporary
permit would be issued. In a letter dated January 25, 1993, a representative of

Commonwealth Environmental Associates, Inc. indicated that it was his

opinion that the issue concerning the type of permit to be issued by the DWM
would be resolved shortly in favor of VBFC. In his letter of February 25, 1993,
to County Administrator Cashwell and VBFC, an environmental engineer of
the Virginia DWM indicated that the VBFC application was incomplete. The
County and VBFC were asked to address, inter alia, the question whether an
experimental permit should be issued. The parties were there invited to make
further comments and address the deficiencies noted so that a full review of the
application could be made. A final decision was not made by the DWM until
later, and the experimental temporary permit itself was not issued until January
7, 1994, well after the date of the Offering Statement.8
46

It is not necessary, however, for this Court to decide if a genuine issue of fact
exists as to whether the statements relied upon by the appellants were false or
misleading and as to whether the omission relied upon pertained to a fact which
rendered other statements misleading. We are satisfied on the record before us
that the alleged misrepresentations and omission were not material. There is not
a substantial likelihood here that the disclosure of the allegedly false facts or
omitted fact would have been viewed by a reasonable investor as having
significantly altered the total mix of information made available. TSC
Industries, 426 U.S. at 449, 96 S.Ct. at 2132.

47

Appellants have based their case essentially on a few isolated passages in the
lengthy Offering Statement. In so doing, they have disregarded the "total mix"
of available information. The alleged misrepresentations and omission relied
upon by appellants must be considered in the full context in which they were
made. Cautionary language in an offering document may negate the materiality
of an alleged misrepresentation or omission. In re Donald J. Trump Casino
Securities Lit., 7 F.3d 357, 371 (3d Cir.1993), cert. denied sub nom. Gollomp v.
Trump, 510 U.S. 1178, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994). This is the socalled "bespeaks caution" doctrine relied upon by various courts in concluding
that claims of securities fraud are subject to dismissal if cautionary language in
the offering document negates the materiality of the alleged misrepresentations
or omissions. Id.; see also Sinay v. Lamson & Sessions Co., 948 F.2d 1037,
1040 (6th Cir.1991); I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936
F.2d 759, 763 (2d Cir.1991); Romani v. Shearson Lehman Hutton, 929 F.2d
875, 879 (1st Cir.1991); Luce v. Edelstein, 802 F.2d 49, 56 (2d Cir.1986); Polin
v. Conductron Corp., 552 F.2d 797, 806 n. 28 (8th Cir.), cert. denied, 434 U.S.
857, 98 S.Ct. 178, 54 L.Ed.2d 129 (1977).

48

In this case, the Offering Statement is replete with cautionary language,

examples of which are as follows:

49
VBFC
presently has no significant assets other than the Operations Contract and a
contract with the County for the closure of the County's landfill. Since VBFC has no
significant source of revenue with which to pay the Note other than the Revenues
and revenues from commercial haulers and private deliveries, no financial statements
for VBFC are included in this Offering Statement. (p. 11)
*50* * * * *VBFC's ability to repay the Note is entirely dependent on the volume of
solid waste disposed of at, and processed through, the Building. The County has no
historical records on the volume of solid waste collected by the County and
successfully disposed of at the County landfill.... There can be no assurances that the
County will collect sufficient solid waste for processing at the Facility so that the
fees paid to VBFC under the Operations Contract or that the sale by VBFC of
recycled materials will provide VBFC with adequate revenues to make the payments
due under the Note. (pp. 13-14)
******
51
52 summary, the payment of the principal of, premium, if any, and interest on, the
In
Bonds predominantly is dependent upon the operation of the Facility by VBFC in
accordance with the Operations Contract. VBFC is an early stage company with
insufficient financial resources to withstand any significant, adverse, economic
developments that directly affect it or indirectly affect it by impacting its affiliates,
specifically Funnell. (p. 17).
******
53
VBFC has never operated a facility similar to the Facility ... (p. 21)
54
55
There
can be no guarantee that the Building will be completed, and if completed that
it will functionally operate as a solid waste facility or that once operational that it
will generate sufficient revenues to meet operational costs and repay principal and
interest under the Note ... (pp. 21-22)
56

We are persuaded that the above cautionary language in the Offering Statement
renders immaterial as a matter of law the alleged misrepresentations and
omission relied upon by appellants. There is not under the circumstances here a
substantial likelihood that a prospective investor would have viewed the "total
mix" of information to have been significantly altered had such investor known
that anaerobic composting technology had not been proven over a long period
of time. Nor would it have made a significant difference to a prospective
investor that the State of Virginia had not by April 15, 1993 finally decided
whether to issue a permanent or an experimental operating permit.

57

Relying on Huddleston v. Herman & MacLean, 640 F.2d 534, 543-44 (5th
Cir.1981), rev'd in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74
L.Ed.2d 548 (1983), appellants argue that only general cautionary language
was contained in the Offering Statement and that the inclusion of such language
does not excuse defendants' failure to reveal known adverse facts. We disagree.
These were not merely vague, boilerplate disclaimers. Rather, extensive and
meaningful cautionary language was included in the Offering Statement, and
the language used describes in specific detail the risks which a purchaser would
assume by purchasing the Bonds. In particular, purchasers of the Bonds were
told that there could be "no guarantee" that, if completed, the Building "will
functionally operate as a solid waste facility" or that once operational "it will
generate sufficient revenues to meet operational costs and repay principal and
interest...." They were further told that VBFC had never previously operated a
facility similar to the one which was to generate revenue for payment of bond
interest and principal. Here, as in Trump, the cautionary statements were
tailored precisely to address the uncertainty surrounding repayment of the
Bonds because of the possible inability of VBFC to generate sufficient revenues
to make the necessary principal and interest payments. See In re Donald Trump,
7 F.3d at 372.

58

The venture failed because of the occurrence of the very same events outlined
as risks in the Offering Statement. As noted, VBFC had no significant assets
other than its contracts with the County. The sole source of funds for the
payment of interest and principal to bondholders was the income which VBFC
was to receive from its contracts with the County and from future contracts with
other Virginia counties. County payments commenced in April of 1994, but
VBFC was not thereafter able to secure contracts from other counties. Because
it was under-capitalized and had severe cash flow problems, VBFC announced
in September of 1994 that it was unable to fulfill its obligations under its
contracts with the County. Operations ceased on October 5, 1994, and the
County then stopped making payments. On October 31, 1994, Signet, as
Trustee, declared the Bonds to be in default.9

59

For these reasons, we conclude that summary judgment was properly entered
by the district court in favor of the appellees as to Counts 1 and 2. Although the
total mix of the information made available warned them of the high risks they
were facing, the bond-holders nonetheless chose to purchase these Bonds. They
can hardly now claim that their losses were, pursuant to Rule 10b-5 and
12(2), the result of securities fraud committed by the appellees.

III

60

Insofar as Count 1 of the amended complaint is concerned, the entry of

summary judgment in favor of defendants is supportable on another ground. In
a suit brought under Rule 10b-5, "the plaintiff must show both 'loss causation-that the misrepresentations or omissions caused the economic harm--and
transaction causation--that the violations in question caused the [plaintiff] to
engage in the transaction in question.' " Bennett v. United States Trust Co., 770
F.2d 308, 313 (2d Cir.1985), cert. denied, 474 U.S. 1058, 106 S.Ct. 800, 88
L.Ed.2d 776 (1986) (quoting from Schlick v. Penn-Dixie Cement Corp., 507
F.2d 374, 380 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44
L.Ed.2d 467 (1975)); Wilson v. Ruffa & Hanover, P.C., 844 F.2d 81, 85 (2d
Cir.1988), vacated on other grounds, Wilson v. Saintine Exploration & Drilling
Corp., 872 F.2d 1124 (2d Cir.1989). A direct or proximate relationship between
the loss and the misrepresentation must be shown. Bennett, 770 F.2d at 314.

61

Here, it was the inexperience of VBFC personnel, the company's weak

financial structure and its inability to secure contracts from others which
ultimately caused the failure of the venture. The fact that the technology was
allegedly experimental and unproven had little to do with the company's
collapse. It was not faulty technology which caused the failure of the venture
but rather economic factors. Appellants have not pointed to evidence in the
record which would support their allegation that the proximate cause of their
loss was the failure of the technology to work.

62

We conclude on this record that appellants have failed to produce evidence

below to show that the alleged misrepresentations or omission proximately
caused their damages. Summary judgment as to Count 1 of the amended
complaint was therefore appropriately entered by the district court in favor of
appellees on the alternative ground that appellants had failed to prove loss
causation.10

IV
63

Count 3 of the amended complaint is brought under 12(1) of the 1933 Act.
Appellants argue that appellees violated this statute by not registering the
Equipment Bonds. It is alleged in Count 3 that "[i]n the event that interest on
the Equipment Bonds are [sic] deemed to be subject to Federal income taxation,
the Equipment Bonds were required to be, but were not, registered pursuant to
Section 5 of the 1933 Act."

64

The district court dismissed Count 3 on the ground that the issue was not ripe
for determination and that therefore no case and controversy had been

presented by that claim. We agree.

65

Rather than asserting in the amended complaint that the interest on the
Equipment Bonds was in fact taxable, appellants instead alleged that if it be
later "deemed" that such interest was subject to federal income taxation, then
the Equipment Bonds "were required to be" registered. Not only are the
allegations of Count 3 based on a hypothetical occurrence, but also appellants
have not produced any evidence indicating that the interest in question was
indeed subject to federal taxation.

66

Article III of the Constitution limits the "judicial power of the United States to
the resolution of 'cases' and 'controversies.' " Valley Forge Christian College v.
Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471,
102 S.Ct. 752, 757-58, 70 L.Ed.2d 700 (1982). An allegation of a possible
future injury does not satisfy the requirements of Article III of the Constitution.
Whitmore v. Arkansas, 495 U.S. 149, 158, 110 S.Ct. 1717, 1724-25, 109
L.Ed.2d 135 (1990). Dismissal for lack of ripeness is appropriate where
nothing in the record shows that appellants have suffered any injury thus far
and the future effect of the law relied upon remains wholly speculative.
Socialist Labor Party v. Gilligan, 406 U.S. 583, 589, 92 S.Ct. 1716, 1720, 32
L.Ed.2d 317 (1972).

67

Here, it is apparent that no case and controversy is presented by Count 3, which

is based on a hypothetical claim not ripe for adjudication. We therefore
conclude that the district court properly dismissed Count 3 of the amended
complaint.11

V
68

Relying on Rule 56(f), F.R.Civ.P., appellants argue that they were denied an
adequate opportunity to undertake discovery to support their opposition to
appellees' dispositive motions. Rule 56(f) provides as follows:

69
When
Affidavits are Unavailable. Should it appear from the affidavits of a party
opposing the motion that the party cannot for reasons stated present by affidavit
facts essential to justify the party's opposition, the court may refuse the application
for judgment or may order a continuance to permit affidavits to be obtained or
depositions to be taken or discovery to be had or may make such other order as is
just.
70

Although dispositive motions were filed at an early stage of the case, much
discovery had been undertaken by the appellants before a hearing was held by

the district court on the motions. At the time of the filing of their amended
complaint on May 22, 1995, appellants had propounded interrogatories and
requests for the production of documents. Most of the appellees responded to
this discovery, and a large number of documents were produced.
71

After various appellees had filed dispositive motions, appellants, on July 11,
1995, filed a motion asking the Court to hold a pretrial conference concerning
the timing of summary adjudication under Rule 56. Inter alia, appellants
asserted that they had not yet had a reasonable opportunity for discovery. In a
Memorandum Opinion entered on July 27, 1995, the district court denied that
motion, noting that appellees had a right "to test swiftly the legal soundness of
the charges made against them." Appellants were specifically put on notice that
the court would consider the pending dispositive motions "beyond the bare
four corners of their Amended Complaint." The court instructed appellants that,
if they determined that a complete response to appellees' motions would be
impossible without further discovery, they should submit appropriate affidavits
to that effect pursuant to Rule 56(f).

72

Thereafter, on August 25, 1995, appellants filed an opposition to appellees'

pending dispositive motion together with affidavits. Some sixty exhibits were
submitted. One of the affidavits requested that counsel be permitted to
undertake further discovery pursuant to Rule 56(f). However, that affidavit did
not identify by name any expert, nor did it indicate the substance of any expert's
opinion to be submitted by way of affidavit. On November 9, 1995, a hearing
was held on all pending motions to dismiss or for summary judgment. Some six
days later, appellants filed a supplemental affidavit pursuant to Rule 56(f). In
that affidavit, counsel did identify certain experts and indicated counsel's belief
that these experts would render opinions favorable to appellants if a
continuance were granted and if further discovery were permitted. No such
further period of discovery was allowed by the district judge. The Court's
Memorandum Opinion granting defendants' motions for summary judgment
was entered on December 7, 1995. Appellants argue that the district court erred
in denying their request for a continuance pursuant to Rule 56(f).

73

Denial of a Rule 56(f) request is reviewed under an abuse of discretion

standard. Nguyen v. CNA Corp., 44 F.3d 234, 242 (4th Cir.1995); Strag v.
Board of Trustees, 55 F.3d 943, 953 (4th Cir.1995). We conclude that under the
circumstances here, the district judge did not abuse his discretion in denying
appellants' request for a continuance so that further discovery could be
undertaken.

74

It was after the hearing had been held on defendants' motions for summary

judgment that appellants asked that the case be continued so that their identified
experts could visit the site of the Facility and finalize their opinions. Appellants
had been warned by the court's ruling of July 27, 1995 that they should prepare
appropriate responses to appellees' dispositive motions, including appropriate
affidavits. Nevertheless, no affidavit of any expert was submitted, and no expert
was even identified when, a month later in August of 1995, appellants filed
their opposition to appellees' motions for summary judgment together with
supporting papers. The hearing on the motions was held some two and one-half
months later, and it was after that hearing that appellants requested a
continuance so that their experts could complete their investigations. Appellants
have not explained why necessary investigations by their experts could not have
been completed many months earlier so that appropriate affidavits of their
experts could have been submitted before the hearing. The adverse party
opposing a motion for summary judgment must under Rule 56(c) file a
responding affidavit "prior to the day of hearing...."
75

In view of these circumstances, we conclude that the district court did not abuse
its discretion in declining to permit appellants to undertake further discovery
pursuant to Rule 56(f) before ruling on appellees' motions for summary
judgment.

VI
76

For the foregoing reasons, we affirm the judgments entered below. 12

77

AFFIRMED.
MURNAGHAN, Circuit Judge, dissenting:

78

I respectfully dissent in part. I disagree with Part II of the majority's opinion,

which affirms the district court's grant of summary judgment to all of the
Appellees on Counts 1 and 2, the Rule 10b-5 and 12(2) claims, on the ground
that the Appellees made no material misrepresentations or omissions in the
Offering Statement for the Equipment Bonds. The majority's opinion relies on
the "bespeaks caution" doctrine and holds that cautionary language in the
Offering Statement renders immaterial the Appellees' representation that the
technology was proven. The majority opinion, however, erroneously applies the
bespeaks caution doctrine.

I.
79

Rule 10b-5, promulgated under the Securities Exchange Act of 1934, and

79

Rule 10b-5, promulgated under the Securities Exchange Act of 1934, and
12(2) of the Securities Act of 1933 both require the plaintiff to prove that the
defendant made an untrue statement of material fact or omitted a material fact
necessary to make the statements true. 17 C.F.R. 240.10b-5(b) (1996); 15
U.S.C.A. 77l(2) (West 1981). "Materiality" for purposes of the securities laws
is a "fact-specific inquiry" that "depends on the significance the reasonable
investor would place on the withheld or misrepresented information." Basic
Inc. v. Levinson, 485 U.S. 224, 240, 108 S.Ct. 978, 988, 99 L.Ed.2d 194
(1988). The plaintiff must demonstrate that a "substantial likelihood" exists that
disclosure of the true facts "would have been viewed by the reasonable investor
as having significantly altered the 'total mix' of information made available."
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132,
48 L.Ed.2d 757 (1976). Statements of fact and statements of opinion can both
be material. However, "[m]isstatements or omissions regarding actual past or
present facts are far more likely to be actionable than statements regarding
projections of future performance." Malone v. Microdyne Corp., 26 F.3d 471,
479 (4th Cir.1994).

80

In the instant case, the Feasibility Statement attached to the Offering Statement
represented that the technology employed in the Facility was "proven" and was
being used in "existing operational facilities." The Appellants contend,
however, and provide supporting evidence to prove, that the technology was, in
fact, experimental and unproven.

81

In support of their motions for summary judgment, the Appellees submitted an

expert's affidavit which stated that, in the expert's opinion, the technology was
proven. Specifically, the affidavit stated that "anaerobic composting was not, as
of 1993, an 'experimental' technology as that term is used and understood in the
industry."

82

In opposition to the Appellees' motions, however, the Appellants submitted a

report, prepared by the County's expert, entitled "Organic Waste Systems" (the
"OWS Report"). The OWS Report contradicts key representations of the
Offering Statement regarding the Facility's "anaerobic digester co-composting"
equipment. In particular, the OWS Report states that "[n]one of the existing
technologies [as of 1993] were actually proven over a long period of time and
no long-term reliable investment or operating costs were available." In addition,
the OWS Report states that the "technology of dry anaerobic digestion was an
emerging technology at the time of selection" and that the development in the
United States had been "limited to some small pilot-scale experiences."

83

The majority correctly points out that the OWS Report also contains passages

that support the Appellees' argument that the technology in question was
proven. However, we have held that on summary judgment the nonmoving
party is entitled:
84 have the credibility of his evidence as forecast assumed, his version of all that is
to
in dispute accepted, all internal conflicts in it resolved favorably to him, the most
favorable of possible alternative inferences from it drawn in his behalf; and finally,
to be given the benefit of all favorable legal theories invoked by the evidence so
considered.
85

Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir.1979). In the
instant case, the Appellants at least raised a genuine issue of fact as to whether
the statements that they relied upon misrepresented the nature of the technology
in the proposed investment.

86

The Appellants also adequately established that a reasonable investor likely

would have considered this information "material." Experimental technology
generally has a greater risk of failure than proven technology. More
importantly, the success of the technology in the instant case bore directly on
the risk of the investment. The sole source of revenues for repayment of the
Equipment Bonds was the payments that VBFC would receive from the County
under the Operations Contract. VBFC had no other significant sources of
revenue or assets. However, the County would only pay VBFC under the
Operations Contract if the VBFC successfully processed the trash in the
Facility. Thus, if the technology failed, so would the revenues for repayment of
the Equipment Bonds. A substantial likelihood exists that a prospective
investor would have viewed the "total mix" of information to have been
significantly altered if the investor knew that the technology was experimental
and had not been proven. TSC Industries, Inc., 426 U.S. at 449, 96 S.Ct. at
2132.

87

Contrary to the majority's reasoning in Part II of its opinion, the "cautionary

statements" in the Offering Statement do not render the Appellees'
misrepresentations immaterial. The bespeaks caution doctrine provides that
certain misrepresentations in offering documents do not establish securities
fraud liability when they are accompanied by meaningful warnings that clearly
"bespeak caution." In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 364
(3d Cir.1993), cert. denied sub nom. Gollomp v. Trump, 510 U.S. 1178, 114
S.Ct. 1219, 127 L.Ed.2d 565 (1994). As the Third Circuit stated, " 'bespeaks
caution' is essentially shorthand for the well-established principle that a
statement or omission must be considered in context, so that accompanying
statements may render it immaterial as a matter of law." Id. Courts apply the

narrow, fact-intensive bespeaks caution defense on a case-by-case basis. See,

e.g., Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392, 1404 (7th
Cir.1995); Rubinstein v. Collins, 20 F.3d 160, 167-68 (5th Cir.1994); Trump, 7
F.3d at 371.
88

However, the bespeaks caution doctrine only applies to alleged

misrepresentations regarding "soft," forward-looking statements, such as
forecasts, opinions, and projections. For example, in Trump, 7 F.3d at 369-71,
the Third Circuit held that an allegedly false statement that the issuer
"believed" that it would generate sufficient funds in the future to repay the
principal and interest on the bonds at issue was not actionable in view of
disclosures "bespeaking" caution about the prediction. The Trump court held
that forward-looking statements will not form the basis for a securities fraud
claim if those statements are accompanied by meaningful cautionary
statements. Id. at 371. The Fifth Circuit similarly has held that the bespeaks
caution doctrine addresses "situations in which optimistic projections are
coupled with cautionary language." See Rubinstein, 20 F.3d at 167 (emphasis
added). See also Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1040 (6th
Cir.1991) ("Economic projections are not actionable if they bespeak caution.");
In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1413 (9th Cir.1994) (holding
that the bespeaks caution doctrine applies when the defendants' forwardlooking representations contain sufficient cautionary language), cert. denied sub
nom. Miller v. Pezzani, --- U.S. ----, 116 S.Ct. 185, 133 L.Ed.2d 123 (1995).

89

The bespeaks caution doctrine does not apply to misrepresentations regarding

known, historical facts. The Fifth Circuit, for example, stated that "the inclusion
of general cautionary language regarding a prediction would not excuse the
alleged failure to reveal known material, adverse facts." Rubinstein, 20 F.3d at
171. The Seventh Circuit also has held that the bespeaks caution doctrine does
not, as a matter of law, render misrepresentations of "hard" fact immaterial. See
Harden, 65 F.3d at 1405-06. The First Circuit similarly has explained that the
bespeaks caution doctrine cannot render a false statement of present fact
immaterial as a matter of law. See Shaw v. Digital Equipment Corp., 82 F.3d
1194, 1213 (1st Cir.1996).

90

A district court similarly held that the bespeaks caution doctrine does not
justify dismissal of a complaint where a plaintiff contends that the defendants
concealed or misrepresented current events and business conditions. See J/H
Real Estate, Inc. v. Abramson, 901 F.Supp. 952, 956 (E.D.Pa.1995). That court
held that the "doctrine applies only where forecasts or projections are
accompanied by sufficient cautionary language. In other words, the misleading
statements must be 'forward-looking' before the 'bespeaks caution' doctrine can

be invoked." Id. (internal citations omitted).

91

The bespeaks caution doctrine should not apply to the alleged

misrepresentations in the instant case. The Appellants premise liability on the
Appellees' misrepresentation of current and existing facts regarding the
experimental nature of the technology. The Feasibility Study represented that
the technology employed in the Facility was "proven" and used in "existing
operational facilities," and the Appellants have raised at least a genuine issue of
fact that the technology was not proven and had only been used in small, pilotscale facilities. Unlike the cases that the district court and the majority opinion
cite, the instant case does not involve predictions about future events. Rather, it
involves misrepresentations about known, historical facts. "Proven" describes
an established fact, not a forward-looking projection. Thus, since the
Appellants sufficiently proved, for purposes of summary judgment, that the
Appellees misrepresented and hid present facts that would have allowed the
Appellants to make an informed judgment as to the extent of the risk, the
surrounding cautionary language could not have rendered the statements
immaterial as a matter of law. The inclusion of such cautionary language
regarding predictions of the Facility's future success does not excuse the
Appellees' alleged misrepresentation of current and existing facts regarding the
nature of the technology.

92

Therefore, I think that the district court erred in granting summary judgment to
all of the Appellees on Counts 1 and 2, the Rule 10b-5 and 12(2) claims, on
the ground that the Appellees did not make a material misrepresentation or
omission.

II.
93

I do, however, agree with Part III of the majority's opinion, which affirms the
district court's grant of summary judgment to all of the Appellees on the Rule
10b-5 claim on the additional ground that the Appellants failed to demonstrate
loss causation. Thus, I would also affirm the district court's grant of summary
judgment to all of the Appellees on Count 1, the Rule 10b-5 claim, but I would
do so only on the ground that the Appellants failed to establish loss causation.

III.
94

As the majority opinion notes, however, loss causation was not an element of a
claim under 12(2) at the time that the Appellants commenced the instant suit.
Since then, Congress has amended 12(2) to require proof of loss causation.
See 15 U.S.C.A. 77l(b) (West Supp.1996). However, the amendment does not

apply to suits, such as the instant one, commenced before December 22, 1995.
Therefore, the Appellants' failure to demonstrate loss causation is not fatal to
their 12(2) claim.
95

The district court properly granted summary judgment to the County and the
Board on the 12(2) claim on the ground that they are not statutory sellers of
securities under 12(2). Section 12(2) imposes liability on "[a]ny person" who
"offers or sells a security" by means of a prospectus that includes a material
misrepresentation or omission. 15 U.S.C.A. 77l(2) (West 1981). Thus,
12(2) limits liability to those who "offer or sell" securities.

96

In Pinter v. Dahl, 486 U.S. 622, 641-47, 108 S.Ct. 2063, 2075-79, 100 L.Ed.2d
658 (1988), the Supreme Court addressed the scope of "offer or sell."* The
Supreme Court held that an individual who passes title in a security to a buyer
for value and an individual who engages in solicitation both qualify as one who
"offers or sells." Id. The district court in the instant case correctly found that the
County and the Board did not "offer or sell" the Equipment Bonds because they
neither solicited nor passed title to the Appellants. The Appellants failed to
establish any contact between themselves and the County or the Board prior to
the sale. Thus, I would affirm the district court's grant of summary judgment to
the County and the Board on the 12(2) claim.

97

However, as stated above, I think that the district court erred in granting
summary judgment to the remaining Appellees on the 12(2) claim on the
ground that the Appellees did not make a material misrepresentation. Since the
bespeaks caution doctrine does not properly apply to the instant case, I would
reverse the district court's grant of summary judgment to the remaining
Appellees on Count 2, the 12(2) claim. Since I would reverse the district
court's dismissal of the federal 12(2) claim, I would also reverse the district
court's dismissal of the pendent state law claims asserted in Counts 4 through
16 of the amended complaint.

The Building Bonds and the Closure Bonds were issued by the Authority with
financing to be provided by the County. Unlike these County obligations, the
Equipment Bonds were not backed by the full faith and credit of the County

Gasner sued on his own behalf and on behalf of a class of similarly situated
persons

Also named as defendants were the Board of Supervisors of the County (the
"Board"), Charles W. Burgess, Jr. (the County Administrator), Dewey P.

Cashwell (the former County Administrator), Carkap, Inc. (the general partner
of Carter Kaplan), William P. Carter and Robert R. Kaplan (officers of Carter
Kaplan), EMS Engineering, P.C. (an engineering firm), Funnell Industries, Inc.
(manufacturer of the equipment used in the facility), Barry H. Funnell (an
officer, director and owner of Funnel and of VBFC), Harvey T. Baxter (an
officer, director and owner of VBFC), Hirschler, Fleischer, Weinberg, Cox &
Allen, P.C. (a law firm which served as counsel for the underwriter and as bond
counsel), David F. Belkowitz (an attorney employed by the Hirschler, Fleischer
firm), Sands, Anderson, Marks & Miller, P.C. (the law firm which served as
counsel for both the County and the Authority), and Daniel M. Siegel (an
attorney employed by the Sands, Anderson firm)
4

Count 2 further alleged that defendants Funnell, Baxter and Carter Kaplan were
secondarily liable under 15 of the 1933 Act

Count 3 further alleged that defendants Funnell, Baxter and Carkap were
secondarily liable as controlling persons of VBFC or Carter Kaplan, pursuant to
15 of the 1933 Act

In TSC Industries, the Supreme Court articulated the standard for determining
when an omission would be considered material for purposes of a claim under
14(a) of the 1934 Act. Subsequently, the Supreme Court expressly adopted the
TSC Industries standard of materiality "for the 10(b) and Rule 10b-5 context."
Basic, Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 983, 99 L.Ed.2d 194
(1988)

The De Baere affidavit, dated September 27, 1995, was submitted by appellees
as a reply to appellants' opposition to appellees' motions for summary judgment

Under Virginia law, the one-year temporary permit was renewable for three
additional years. Variances could thereafter be requested for further extensions
of the permit

In October of 1994, the County, the Authority and Siegel, as escrow agent, filed
suit in the Circuit Court for Dinwiddie County, naming as defendants VBFC,
Funnell, Signet and others

10

Loss causation was not an element of a claim asserted in 1995 under 12(2).
Caviness v. Derand Resources Corp., 983 F.2d 1295, 1305 (4th Cir.1993)

11

Appellees further argue that the County, the Board, Cashwell and their
attorneys owed no affirmative duty of disclosure under Rule 10b-5 and that
these defendants are not statutory sellers under 12(2) of the 1933 Act. In view
of our determination that for other reasons summary judgment was properly

entered by the district court in favor of all defendants as to Counts 1 and 2 of

the amended complaint, it is not necessary to address these alternative
arguments
12

We are further satisfied that the district court acted within its discretion in
dismissing without prejudice the pendent state law claims asserted in Counts 4
through 16 of the amended complaint. See 28 U.S.C. 1367(c)(3)

The Supreme Court actually decided Pinter under 12(1) of the Securities Act
of 1933, which also limits liability to those who "offer or sell" securities. See
15 U.S.C.A. 77l(1) (West 1981). Pinter 's reasoning, however, applies with
equal force to cases under 12(2). See Cortec Indus. Inc. v. Sum Holding L.P.,
949 F.2d 42, 49 (2d Cir.1991); In re RAC Mortgage Inv. Corp. Sec. Litig., 765
F.Supp. 860, 865 (D.Md.1991)